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Polycom Misses 2Q12 Estimates - Analyst Blog

Yesterday, after the market closed,
Polycom Inc.
(
PLCM
) declared its financial results for the second quarter of 2012.
The company has missed the Zacks Consensus Estimates. Furthermore,
management provided a weak financial outlook for the rest of
2012.

GAAP net income in the second quarter of 2012 was $7.0 million
or 4 cents per share compared to a net income of $29 million or 16
cents per share in the prior-year quarter. However, adjusted
(excluding special items) earnings per share in the reported
quarter were 11 cents, and thus missed the Zacks Consensus Estimate
by a penny.

Total revenue in the second quarter of 2012 was $358.5 million,
up 5% year over year, and almost in line with the Zacks Consensus
Estimate of $359 million. Segment wise, UC Group Systems revenue
was $251.7 million, up 7% year over year. UC Personal Devices
revenue was $42.9 million, down 3% year over year. UC Platform
(Network Infrastructure) revenue was $63.9 million, up 6% year over
year.

Geographic Distribution of Sales

In the second quarter of 2012, the American region generated
revenues of approximately $177.7 million, up 3% year over year.
Europe, Middle East, and Africa generated $80.4 million, down 2%
year over year. Asia-Pacific accounted for the remaining $100.4
million, up 16% year over year.

Margins

Gross margin in the reported quarter was 60.9% compared with
62.9% in the year-ago quarter. Operating expenses in the second
quarter were $210.2 million, up 19.2% year over year. Quarterly
operating margin was 13.1% compared with 16.3% in the year-ago
quarter.

Balance Sheet

At the end of the second quarter of fiscal 2012, Polycom had
nearly $614.9 million of cash & investments on its balance
sheet compared with $591.6 million of cash & investments at the
end of fiscal 2011. Its balance sheet remained clear of any
outstanding debt at the end of the second quarter.

Cash Flow

During the first half of fiscal 2012, cash flow from operations
was over $73.4 million compared with $130.9 million in the
prior-year quarter. Free cash flow (cash flow from operation less
capital expenditures) in the previous quarter was $37.9 million,
compared with nearly $98.9 million in the year-ago quarter.

Future Guidance

Management provided a weak guidance for the second half of 2012.
For third quarter of 2012, the company expects revenues in the
range of $325-$335 million and earnings per share of 6-9 cents. For
the fourth quarter of 2012, the company expects revenues to be in
the range of $355-$365 million and earnings per share of 15-17
cents.

Competition Looms Large

The uniform collaborative communications market is fiercely
competitive, resulting in cut-throat pricing strategy.
Cisco Systems Inc.
(
CSCO
) became the major player after it acquired Tandberg TV. New
players such as
Logitech International S.A.
(
LOGI
) and
Microsoft Corp.
(
MSFT
)
,
despite being a partner of Polycom, make the competitive landscape
more intense.

Logitech entered into the video conferencing market through the
purchase of LifeSize Communications Inc. Further, Logitech acquired
Italian firm Mirial, a leading video conferencing solution provider
to offer video-calling on tablets and other mobile handhelds.

Microsoft has acquired Skype, a leading developer of free
video-calling software for PCs and other digital devices. The
acquisition of Skype will enable Microsoft to offer video
conferencing from desktop computers.

Our Recommendation

As of now, Polycom remains the only pure-play unified
collaborative solutions provider. The company stands to gain as
enterprises, governments, and educational institutions increasingly
recognize the productivity-enhancing benefits of video
conferencing.

We thus maintain our long-term Neutral recommendation on
Polycom. However, based on management's weak financial guidance for
the rest of the year, PLCM currently holds a short-term Zacks #4
Rank (Sell) on the stock.

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